How to Calculate Crypto Tax in India (Step-by-Step Guide)

Crypto taxation in India can be confusing, with different rules for different types of transactions. Miscalculations can lead to penalties, so it’s essential to get it right. This guide simplifies the process into clear steps, helping you accurately compute your tax liability.

How to Calculate Tax on Cryptocurrency in India

Follow these steps to calculate your crypto tax liability in India:

Step 1: Identify Taxable Transactions

Crypto transactions are taxed differently depending on their nature. Below are the key taxable activities:

• Selling crypto for INR or another fiat currency.
• Exchanging one crypto for another.
• Receiving crypto as payment for goods/services.
• Earning from staking, mining, or airdrops.

Step 2: Calculate Profit for Each Transaction

• Tax is applied on a per-transaction basis, not on net yearly profit.
• Formula: Profit = Selling Price – Purchase Price (of that specific transaction)

Example: If you bought 1 BTC for ₹10,00,000 and later sold it for ₹12,00,000, your taxable gain for that transaction is ₹2,00,000.

Step 3: Apply the 30% Flat Tax

• Formula: Tax = 30% of Profit (per transaction)

Example: ₹2,00,000 × 30% = ₹60,000 tax payable.

• No deductions allowed (trading fees, blockchain fees, etc.).

Step 4: Deduct 1% TDS at Source (if applicable)

• If selling on an exchange, 1% TDS is deducted from the transaction value.
• Example: Selling crypto worth ₹1,00,000 → Exchange deducts ₹1,000 as TDS.
• TDS can be adjusted against your total tax liability when filing ITR.

Step 5: Include Additional Crypto Income

• Airdrops, mining rewards, and staking income are taxed under “Income from Other Sources” at slab rates.

Step 6: Report and Pay Taxes in ITR

• Declare crypto gains under ‘Capital Gains’ in ITR-2.
• Pay any remaining tax before the due date to avoid penalties.

Since crypto tax is calculated per transaction, it’s crucial to maintain detailed records of all trades.

You can use the below template to calculate your taxes easily.

Crypto Tax Calculation Template

You can use this table format to track their own transactions for tax calculation.

How to Minimise Your Crypto Tax Legally in India

While crypto taxes are unavoidable, there are legal ways to reduce your tax burden. Here are some strategies you can use:

1. Hold Long-Term – Since crypto gains are taxed per transaction, holding assets instead of frequent trading can help avoid excessive taxes.
2. Offset Gains with Losses – While crypto losses cannot be deducted from gains, you can offset them against other capital gains in your portfolio.
3. Use Tax-Efficient Accounts – Investing through structures like corporate entities or trusts may provide tax benefits, but consult a tax professional.
4. Time Your Transactions Wisely – Selling in a lower-income year may reduce your overall tax liability.
5. Keep Detailed Records – Proper documentation can help claim deductions where applicable and avoid tax scrutiny.

Common Mistakes to Avoid When Filing Crypto Taxes

Filing crypto taxes can be complex, and errors may lead to penalties or audits. Here are some common mistakes to watch out for:

1. Ignoring Crypto-to-Crypto Trades – Swapping one cryptocurrency for another is a taxable event, even if no fiat is involved.
2. Not Reporting Airdrops and Staking Rewards – These are classified as income and must be declared.
3. Forgetting to Deduct TDS – If selling on an exchange, 1% TDS is deducted, which can be adjusted against total tax liability.
4. Mixing Personal and Business Transactions – If you trade crypto as a business, it may be taxed differently than personal investments.
5. Poor Record-Keeping – Maintaining transaction records is crucial, as tax authorities may require proof of purchase prices and profits.
6. Misclassifying Crypto Income – Gains should be reported under ‘Capital Gains,’ while earnings from staking, mining, and airdrops fall under ‘Income from Other Sources.’
7. Not Paying Advance Tax – If your crypto profits are significant, failing to pay advance tax can result in penalties.

What Happens If You Don’t Pay Crypto Tax?

Failure to pay crypto tax in India can result in serious consequences, including penalties, interest charges, and even legal action under Section 271C of the Income Tax Act, 1961. This section imposes penalties for failure to deduct or pay TDS. Additionally, under Section 276CC, wilful tax evasion can lead to imprisonment ranging from 3 months to 7 years, along with fines.

The Income Tax Department closely monitors digital asset transactions, and non-compliance may lead to notices, audits, and even prosecution in extreme cases. Unpaid taxes also accumulate interest under Section 234A, 234B, and 234C, increasing your overall liability.

To avoid these risks, it’s essential to report and pay taxes on all taxable crypto transactions accurately, ensuring compliance with the Income Tax Act, 1961, and the Finance Act, 2022, which introduced specific provisions for virtual digital assets.

Tools and Resources to Simplify Crypto Tax Calculation

Calculating crypto taxes manually can be time-consuming and prone to errors. Using a reliable tax calculator can streamline the process and ensure accuracy. The Mudrex Crypto Tax Calculator simplifies tax reporting by automatically tracking transactions, calculating tax liabilities, and generating reports in compliance with Indian tax regulations. By leveraging such tools, you can avoid mistakes, save time, and ensure compliance with tax laws effortlessly.

Conclusion

Accurately calculating and reporting your crypto taxes is crucial to staying compliant with Indian regulations and avoiding penalties. By following the steps outlined in this guide and using tools like the Mudrex Crypto Tax Calculator, you can simplify the process and ensure accurate filings.

Staying informed about tax laws and leveraging automation can save you time and effort. For more insights, tax updates, and discussions with fellow investors, join the Mudrex Official Telegram Community today!